1a) A company has inventory with a selling price of $451,000, a market value of
ID: 2414937 • Letter: 1
Question
1a) A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.
True or False
1b) A company's cost of inventory was $219,500. Due to phenomenal demand the market value of its inventory increased to $221,700. This company should write up the value of its inventory according to the conservatism constraint.
True or False
1c) During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:
Specific identification method.
Average cost method.
Weighted-average method.
FIFO method.
LIFO method.
1d) The inventory valuation method that tends to smooth out erratic changes in costs is:
FIFO.
Weighted average.
LIFO.
Specific identification.
WIFO.
1f) The inventory valuation method that results in the lowest taxable income in a period of inflation is:
LIFO method.
FIFO method.
Weighted-average cost method.
Specific identification method.
Gross profit method.
The consistency concept:
1e) Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting.
Requires a company to use one method of inventory valuation exclusively.
Requires that all companies in the same industry use the same accounting methods of inventory valuation.
Is also called the full disclosure principle.
Is also called the matching principle.
Explanation / Answer
1 a) True
b) False
c) FIFO method
d) Weighted average
e) Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting
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